ONGC hoping to sign contract for Satpayev oil field next week

New Delhi: Oil and Natural Gas Corp (ONGC) is hoping to sign a contract for Kazakhstan’s Satpayev oil field next week but last minute glitches may delay the agreement that has been under discussion for almost two years now.

ONGC Videsh Ltd (OVL), the overseas arm of the state-run firm, wants to ink the production sharing contract (PSC) for the Caspian Sea block when Indo-Kazakh Joint Working Group meets in New Delhi on 6 December, a top official said on Friday.

“Negotiations (on the PSC) have concluded but we cannot say with 100 percent certainty that the contract will be signed. Some glitches remain," he said refusing to go into details.

Kazakhstan oil and gas minister Sauat Mynbayev is leading the Caspian nation at the inter-governmental talks on cooperation in hydrocarbon sector. The Indian side will be led by petroleum minister Murli Deora.

OVL is to invest about $400 million in the prospective Satpayev oil field in the Caspian Sea.

Satpayev is situated in highly prospective region of north Caspian Sea and in proximity to at least four fields. A peak output of 287,000 barrels per day (14.3 million tonnes a year) is envisaged from the 256 million tonnes of reserves in the field.

Kazakh national oil firm KazMunaiGas will be the operator of the field, holding 75% stake.

The official said initial agreement for OVL and its partner Mittal Investment Sarl (holding firm of steel magnate Lakhsmi Mittal) getting 25% stake in the Satpayev was signed during Kazakhstan President Nursultan Nazarbayev’s state visit in January 2009 and a PSC has been under discussion since then.

But in November 2009, Mittal pulled out of the project and OVL decided to take the entire 25% stake on its own.

He said OVL will pay $26 million as signing amount to the Kazakhstan government. Besides, it will also pay $80 million as one-time assignment fee. On top of this, OVL has committed a minimum exploration investment of $165 million and an additional optional expenditure of $235 million.

The 1,582 sq km Satpayev block, situated in the Pre-Caspian Basin of Kazakhstan, holds 1.75 billion barrel of inplace oil reserves. It lies in proximity to major fields like Karazhanbas, Kalamkas, Kashagan and Donga, where significant amounts of oil has been discovered.

The Satpayev field was originally identified for OVL but in 2007 Mittal used his influence with Kazakh government to change the allocation to ONGC-Mittal Energy Ltd - the equal joint venture of OVL and Mittal Investment.

But just when the PSC deliberations were being concluded, Mittal pulled out of the project.

Sources said Mittal Investment Sarl, the holding company of Mittal family, had used the Kazakh government to muscle its way into the Satpayev oil field in the Caspian Sea where OVL was shortlisted for a stake. However, just on the eve of signing an agreement for the field, Mittal decided to pullout.

Sources said OVL had anticipated that Mittal may not continue with Satpayev and so, a few months back, had sought specific permission from the Cabinet for going ahead with investing entire $400 million in the field on its own.

Kazakhstan had initially identified the Satpayev and Makhambet blocks in the Caspian Sea for giving 50% stake in one of them to OVL. Later, it reduced the stake on offer to 25% on condition that OVL teamed up with Mittal, who has steel plants in that country.

OVL relented and in June 2007 made an attractive commercial proposal to KazMunaiGas, but in subsequent negotiations Kazakhstan’s state-run firm did not agree on giving operatorship to OVL during the exploratory and appraisal stages.